3 days ago
Mock-Trading Rules Cool South Korea’s Leveraged Chip ETF Frenzy
South Korea has special funds that let people make gains or losses faster by betting on chip companies.
These funds are linked mainly to Samsung Electronics and SK Hynix.
Regulators introduced a practice course to teach investors how the funds work and why they can be risky.
People must practice trading with virtual money for five days.
They must spend at least one hour each day using a Windows computer program.
Some investors said these requirements were too difficult and stopped trying.
The funds lost about $1 billion in investor money during August.
Their total size also became much smaller.
With fewer people trading them, South Korea’s stock market became less jumpy.
Trading value in leveraged ETFs linked to Samsung Electronics and SK Hynix fell to 4% of its June peak.
The ETFs recorded about $1 billion in combined outflows in August, their first expected monthly fund exodus.
A mandatory course requires five days of simulated trading for at least one hour daily on a Windows-based PC.
Combined assets under management fell to $5 billion on Aug. 27 from $11.4 billion in late June.
Reduced trading helped lower the KOSPI volatility gauge to about 50 from 97, although the index remained 25% below its record high.
- Who
- South Korean retail investors, regulators, the Korea Exchange, and the companies Samsung Electronics and SK Hynix.
- What
- Investor demand and trading in leveraged single-stock chip ETFs have dropped sharply after new regulatory requirements.
- Where
- South Korea, involving ETFs listed in Seoul.
- When
- The latest mock-trading rule took effect Aug. 19; figures cited run through Aug. 27.
- Why
- Authorities introduced the restrictions to curb risky leveraged trading and market volatility.
Regulators and Market Stabilizers
Retail Investors and Existing Holders
Purpose of the restrictions
Regulators and Market Stabilizers
Authorities say tighter rules can discourage risky leveraged trading, educate investors about volatility decay, and reduce extreme market swings.
Retail Investors and Existing Holders
Some investors say the requirements are unnecessarily burdensome and deter them from trading even when they are willing to meet the financial conditions.
Mock-trading course
Regulators and Market Stabilizers
The five-day simulation uses virtual cash to give investors direct experience with leveraged products and their risks.
Retail Investors and Existing Holders
Investors interviewed said the Windows-only software, minimum time commitment, and new account requirements were too cumbersome.
Effect of lower trading
Regulators and Market Stabilizers
The contraction in trading has helped bring the KOSPI volatility gauge down from its late-June peak.
Retail Investors and Existing Holders
Existing investors may be frustrated when trying to sell at higher prices, while continued regulatory tightening could prolong outflows.
Key facts
- Underlying stocks
- Samsung Electronics and SK Hynix
- ETF leverage
- The products target twice or, according to one report, as much as three times the underlying stocks’ daily returns.
- Mock-trading requirement
- Five days of simulated trading for at least one hour per day
- Technology requirement
- A Windows-only computer program; the Korea Exchange has no plans for a mobile platform.
- August outflows
- About $1 billion combined from the Samsung Electronics- and SK Hynix-linked ETFs
- Assets under management
- $5 billion on Aug. 27, down from $11.4 billion in late June
- Minimum cash deposit
- The requirement was raised from 10 million won to 30 million won.
- Market volatility
- The KOSPI volatility gauge fell to around 50 from 97 in late June.
Quotes
Kim Jung-hoon
A 41-year-old retail investor from Gyeonggi province.
“I don’t want to brave all the regulatory hurdles when the AI or memory chip industry isn’t doing great. If market conditions were much better and I had the conviction that I could profit from those trades, I would be willing to go through them all.”
livemint.com
“The hours sound long and you can only download the program on PCs. My work computer can’t download external programs. It doesn’t sound easy to bring an extra laptop with me to work.”
livemint.com
Rebecca Sin
A Bloomberg Intelligence analyst.
“The outflows may persist in the near term as regulators continue to tighten rules. South Korean authorities have shifted from supporting these products to actively restraining them.”
livemint.com
Sources
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